Aer Lingus pilots see the light; will other airlines’ unions feel the urge?

Analysis

There is more to the Aer Lingus pilots’ tentative acceptance of last week’s arbitration tribunal’s recommendations than merely salary and benefits. This involved the carrier’s EUR30 million cost reduction strategy involving a “redundancy recommendation, pay and allowance cuts, pension changes and pay freeze”, as “all part of one integrated package.”

Pay and conditions are only part of the equation of evolution that will be unavoidable this year – a factor that is likely to be true right across the board.The Aer Lingus deal is still to be ratified - by 21-Jan-2010 - and issues like outsourcing and pensions are part of the mix.

Together, evolution through salary moderation and structural change will be a difficult cocktail of medicine for the pilots (and others) to digest, but they may be the only way of securing survival for their employers.

The nature of the airline industry has to change if marginal carriers like Aer Lingus are to survive. So long as there is little prospect that the full service airlines can match aggressively low cost carriers like Ryanair, there need to be more weapons in their armoury than merely cost.

So the announcement that Aer Lingus pilots of the IALPA union had pulled back from the brink of a strike is a good early sign for 2010. There are plenty of other European airlines’ pilots queuing up for a look over the edge too. Undoubtedly some will take the leap. But there is a greater air of realism among unions today.

Every Aer Lingus pilot will be well aware that, in the previous week, Aer Lingus had formalised its codeshare agreement with United Airlines for a joint operation between Washington and Madrid, to begin on 28-Mar-2010. It is also “anticipated” by the two carriers that “additional routes may be made available for sale during 2010 to commence operation in Summer 2011”. This is envisaged as just the beginning of a new style of operation, made possible by EU law and by the US-EU multilateral/bilateral agreement.

There are benefits for both United and Aer Lingus in this new route, distinguished by the fact that it will not touch on Irish soil. Both carriers will equally share the commercial and operational benefits and risk, with Aer Lingus managing the operational aspects of the new partnership services and United Airlines taking responsibility for managing revenue generation. The Partnership route structure will be sold under both Aer Lingus and United Airlines codes and will leverage both parties' network capabilities.

This will not be the first time that a European airline has operated to the US from outside its own territory – for example, British Airways’ subsidiary, “Open Skies” premium service between JFK and Paris Orly began in 2008. But US unions are especially edgy about any services, even if it means company growth, unless their pilots are guaranteed of flying the routes. Precedents have a way of becoming just that.

So, for example, Southwest Airlines’ pilots union went to great lengths last year to limit the amount of international codesharing their employer could engage in, where non-Southwest metal was to be used (ie, so their own pilots would not necessarily be flying the aircraft) – again, even if the routes were totally new. Part of the concern here is that new, contract pilots could be used, undermining the very valuable salary benefits that the airlines’ unions had been able to negotiate over the years.

In Southwest’s case, this has meant their pilots are among the best paid in the industry. But the impact of the restriction, a condition of the pilots accepting a new wage deal, is to restrict Southwest’s ability to expand into international markets. Although that in turn limits the number of passengers who would be attracted onto – and therefore help expand - Southwest’s domestic services, the principle was more important than the flow-on benefits for the whole company.

United pilots have been similarly edgy about the new Aer Lingus codeshare. That story may yet have more to come.

The more fundamental intention of the US-EU open skies regime – which comes up for a new round of negotiations in the next few weeks – is to reshape the archaic and arthritic framework in which international aviation operates. A key part of that is more liberal route access, even if US cabotage is off the horizon.

But it also inevitably intrudes into the accompanying work practices which have accompanied the development of this old and essentially protective environment, where decades-old work practices have flourished.

And the Washington Dulles-Madrid operation is only one example of the ways in which things will change. It is just another part of the “poor-man’s merger” process where bilateral and multilateral airline alliances have proliferated, in the absence of real opportunities for international rationalisation through merger. Airlines will have to chase more rational opportunities for entry, embracing new operating practices opened up by a more liberal regime.

2010 to be a year for industrial harmony?

Not all the signs are good for a smooth ride in Europe. More staff cutbacks are seemingly unavoidable for most of the major airlines in 2010, as they try to trim uneconomic routes and services and seek to return to profitability.

British Airways narrowly avoided what would have been a crippling strike over Christmas (and still has to face off again with the same militant flight attendants union next month); Lufthansa’s pilots are increasingly edgy about issues very similar to the Washington-Madrid ones, involving use of operations by Lufthansa’s newly acquired airline partners; Finnair’s, SAS’s and several other airlines' unions are simmering and hold the promise of more to come. All of these involve very attractive employment packages which offer targets for cost reduction.

Industrial harmony this year, if it comes in Europe, will be welcome. But you would have to be bold to predict it just now. There is change in the wind.

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